YPF Defies Oil Industry With Same Budget Amid Price Slump

YPF SA is defying the oil industry trend after crude prices collapsed by keeping last year’s capital budget intact without laying off workers. It’s secret? Argentine government support.

While oil majors including BP Plc and Royal Dutch Shell Plc have announced spending cuts of more than $40 billion, Argentina’s state-run producer nationalized in 2012 will keep its $6 billion capital budget intact from last year, Chief Executive Officer Miguel Galuccio said. YPF is counting on government support to increase earnings before interest, taxes, depreciation, and amortization this year, he said.

“I encourage you to look at the big picture,” Galuccio told investors on a conference call Friday. “We are increasing our proven reserves, we are increasing our Ebitda. We want to continue delivering.”

The Buenos Aires-based company plans to drill more horizontal wells in 2015 than it did last year at the Vaca Muerta shale formation in southern Argentina. Shale output is now 41,200 barrels of oil a day, he said. YPF is in talks with unions to adjust working hours by adding night shifts. No firings are planned for the 71,578 workers, including oil service contractors, employed by YPF, he said.

The number of energy jobs cut globally have surpassed 100,000 as once-bustling oil hubs in Scotland, Australia and Brazil, among other countries, empty out, according to Swift Worldwide Resources, a staffing firm with offices across the world.

YPF’s American depositary receipts rose 1.8 percent to $25.69 at the close in New York. The ADRs have dropped 3 percent this year.

Peso Devaluation?

YPF will try to cut costs by ending sand imports from Brazil and China used in its shale projects and will begin using local sand starting in the third quarter, Galuccio said.

Profit for 2015 could be hurt if Argentina’s inflation, which last year was about 40 percent, isn’t accompanied by a devaluation of the peso, YPF Chief Financial Officer Daniel Gonzalez said on the same call. Pricing in dollar terms will “remain flat,” Gonzalez and Galuccio said.

Argentine Central Bank President Alejandro Vanoli said Wednesday there won’t be a sudden devaluation of the peso. Argentina is scheduled to hold presidential elections on Oct. 25.

Pollution Settlement

Fourth-quarter net income fell to 1.38 billion pesos ($158 million), or 3.52 pesos a share, from 1.92 billion pesos, or 4.89 pesos, a year earlier, YPF said Thursday in a statement after markets closed. Per-share profit excluding some items missed the 4.1-peso average of four analysts’ estimates compiled by Bloomberg.

In contrast, state-owned Petroleos Mexicanos, known as Pemex, posted its ninth consecutive quarterly loss Friday on declining output and plunging prices.

Quarterly profit was curbed after the company set aside 1.2 billion pesos to cover a potential legal settlement, Gonzalez said Thursday. YPF inherited a lawsuit from Repsol SA that alleges contamination of the Passaic River in New Jersey from dioxin, the pesticide DDT and other pesticides. A flood and fire April 2013 at the company’s La Plata refinery cut output and prompted the company to import fuel.

Government Subsidy

“Two one-time events explain why net income decreased despite business fundamentals being very good,” Gonzalez said on a conference call with reporters. “In 2013 we received a one-time, $300 million insurance payment after the refinery incident. In the fourth quarter of 2014 we had to set aside 1.2 billion pesos.”

President Cristina Fernandez de Kirchner’s government is subsidizing oil producers amid a slump in crude by setting fourth-quarter prices of $83.90 a barrel for Medanito light oil and $74 for Escalante heavy oil. West Texas Intermediate in New York and Brent in London sank about 50 percent in 2014, dipping below $50 a barrel last month.

YPF said exploration costs soared 145 percent in the quarter from the year earlier.

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